The Arbitration (Protocol and Convention) Act 1937 and the Arbitration Act 1940 has been replaced by the Arbitration Act 2001 (the Act) for modernising the concept of arbitration in Bangladesh to face upcoming challenges. It has been argued that such legislative steps were urgent in the face of increasing foreign investment in Bangladesh in various sectors[1]. Now almost 17 years have elapsed following the enactment of the Act, and therefore it is high time to evaluate the Act and to justify whether the Act is successful in modernising international arbitration in Bangladesh.
Scope of the Act
As part of globalisation, on one hand Bangladesh is being involved in foreign trades with different countries; and on the other hand, foreign investors are willing to invest in Bangladesh for its cheap labour and its working environment. In such business relations, disputes are highly likely to arise with foreign traders and investors, and arbitration has become a popular mechanism for resolving such disputes. However, it has been identified that under the Arbitration Act 1940, the national courts had an extensive supervisory role over the arbitral process and, most importantly, there were problems being faced by arbitration users in relation to the enforcement of foreign arbitral awards. Consequently, arbitration mechanism had lost its effectiveness. In order to overcome its shortcomings, Bangladesh enacted the Arbitration Act 2001. The Act is based on the UNCITRAL Model Law. The preamble of the Act has taken into consideration of the aforesaid fact and thus specifically mentions that "An Act to enact the law relating to international commercial arbitration, recognition and enforcement of foreign arbitral award and other arbitrations."
International Arbitration
The new Act is applicable for International Commercial Arbitration. Section 2(c) of the Act defines the term “International Commercial Arbitration” and it means an Arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in Bangladesh and where at least one of the parties is: (i) an individual who is a national of or habitually resident in, any country other than Bangladesh; or (ii) a body corporate which is incorporated in any country other than Bangladesh; or (iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than Bangladesh, or (iv) the Government of a foreign country.
Moreover, by virtue of Section 45 of the Act, foreign arbitration awards are now enforceable in Bangladesh unless it falls within the exceptions listed therein. While enforcement, a foreign arbitral award shall, on the application being made to the appropriate court by any party, be enforced by execution by the court under the Code of Civil Procedure 1908, in the same manner as if it were a decree of the domestic Court. However, problem arises when the seat of an international arbitration takes place outside Bangladesh, as Section 3(1) of the Act states that the Act ‘shall apply where the place of arbitration is in Bangladesh’.
Limitation of the Legal Provisions
Section 3 of the Act embodies a restrictive ‘territorial principle’, whereby only arbitration that is considered to take place in Bangladesh falls within the purview of the Act. Therefore, an international arbitration taking place outside Bangladesh shall not fall within the scope of the Act, whereas the Act has been promulgated for modernising the concept of arbitration to face upcoming challenges that may be resulted from international dispute. This has caused considerable confusion as to what ‘place... in Bangladesh’ means. Moreover, the limited scope of the Act has also squeezed the power of the court to pass interim order where the arbitration is taking place outside Bangladesh, even if it is imperative to secure the interest of the claimant of the Arbitration proceeding.
The hon’ble High Court Division of the Supreme Court of Bangladesh, in the case of HRC Shipping Ltd v MVX-Press Manaslu and Others (HRC Shipping)[2] opted for a wide interpretation of the term. The learned Judge in this case did a long journey to find out the scope of the Act under section 3 in light of the objects of the Act keeping in mind the international commitment and obligations under the New York Convention of which Bangladesh is a signatory and also the provision of the UNCITRAL Model Law. In this case, it was held that under section 3 of the Act the court has jurisdiction to give appropriate relief especially the interim orders where the seat of arbitration is outside Bangladesh.
While deciding HRC Shipping case, the learned court had drawn upon the reasoning used in the landmark Indian case, Bhatia International v Bulk Trading SA[3], where the Court held that the Act itself did not state that it would not apply if the place of arbitration is not in Bangladesh or that it would apply only if the place of arbitration is in Bangladesh. On a similar note, the High Court of Bangladesh further observed that a distinction had not been drawn between international commercial arbitration taking place in Bangladesh and that taking place outside Bangladesh.
On the other hand, Section 3 of the Act also came under scrutiny by the High Court Division in STX Corporation Ltd v Meghna Group of Industries Limited[4] (STX Corporation), and the High Court Division adopted a literal construction of section 3(1) of the Act. In support of such an interpretation, the Court cited the case of Unicol Bangladesh v Maxwell[5], where the Appellate Division of the Supreme Court of Bangladesh, the apex court of the country, stated in unequivocal terms that ‘the law in section 3(1)… is limited in application as to the arbitration being held in Bangladesh’.
In STX Corporation, Mr. Justice Mamnoon Rahman[6] pointed out that foreign arbitration award meant an award made in the territory of any country other than Bangladesh. He reached the conclusion from combined reading of sections 2(c), 2(k) and section 3 of the Act that the intention of the legislature was that the scope of the Act would be limited to within the territory of Bangladesh, except for the scope to enforce of an award passed in a foreign arbitration, pursuant to the section 3(2) read with section 45, 46 and 47 of the said Act. He further stated that this court as well as of our Apex Court came to a conclusion that unless or until the Parliament amended the law or a person could show that any provision of law is ultra vires to the Constitution of the Republic, High Court of Bangladesh could not strike down or interpret a specific law in a different manner.
Consequence of the Limitation
In a hypothetical situation where restrictive interpretation approach of Section 3 of the Act subsists, it may be a case that the courts of Bangladesh are not being able to grant interim order where the parties to a dispute are arbitrating in a foreign seat and the respondent's assets are located in Bangladesh, and there is a possibility that the respondent may dispossess his assets for avoiding enforcement of the same. It would result in the claimant having won an expensive arbitration, and the same left with only a paper award.
Probably taking into consideration of the aforesaid instance, Mr. Justice Mamnoon Rahman[7] has addressed to the fact that it is the generally accepted principal in each developed legal system that the state court order interim and conservatory measures in support of arbitration despite the powers of the arbitral tribunals to do so. There are many reasons: the tribunal may not yet have been composed or it may lack the required power; urgent relief may be required and the tribunal cannot be constituted quickly, an application without respondent may be essential to prevent avoidance of the relief sought.
The supreme Court of India in Bhatia case as well as in several decisions of the High Court held that court can order interim measures where seat of arbitration in outside India. Bhatia case was followed in Venture Global Engineering, vs Salyam Computers Services Ltd[8]. However, there are some decisions having the opposite view[9].
Way Forward
Even though Bangladeshi courts have come to conflicting decisions as to the scope of the Act, there is a decision of the Appellate Division of the Supreme Court of Bangladesh restricting the application of the Act[10], and pursuant to Article 111 of the Constitution of the People’s Republic of Bangladesh, a decision of the Appellate Division of the Supreme Court is binding upon the High Court Division and other courts subordinated to it. This has caused considerable consternation for the legal community and, in particular, foreign parties involved in foreign arbitration proceedings with Bangladeshi companies, as it is apparent that scope of assistance by the Bangladeshi courts to such proceedings are extremely limited.
In India, conflicting decisions are there also. The judgment of Bhatia Case has not been overruled yet, instead Bhatia Case is being distinguished based on facts and circumstances. Therefore, no conclusive decision and guideline have been found in both Bangladesh and India. On the above premises, the first and foremost clarification that is required in the Act is its applicability.
It shall not be out of place to mention that the limited scope of applicability of the Act has already been addressed by the revised Model Law, which states that provisions relating to, inter alia, interim measures shall apply irrespective of the fact that the place of arbitration is outside the country concerned. Now, since the Act is based on the UNCITRAL Model Law, Bangladesh should also amend the scope of the Act in line with Model Law to achieve the objective of modernising international arbitration.
Mr. Dewan Faisal
Senior Associate
Advocate Dewan Faisal is a Senior Associate of A.S & Associates. He completed his legal studies from University of London in 2011. Thereafter, he has completed his LL.M from Eastern University, Bangladesh on 2012. In 2016, he completed another LL.M on International Commercial Law from University of Derby, UK. Currently, he is the Team Leader of the Corporate Financing & Capital Market sector and the Energy & Power sector. He has immense expertise in Company and Commercial matters. His experience also encompasses in the field of Alternative Dispute Resolution (ADR) and he is a CEDR, UK Accredited Mediator.
Pull bio from previous article
[1]Professor Dr AFM Maniruzzaman, The new arbitration act and some afterthoughts, The Daily Star, October 15, 2005
[2] 58 DLR 185
[3] 5A 2002 AIR (SC) 1432
[4] 64 DLR 550
[5] 56 DLR (AD) p.166, at p. 172
[6] STX Corporation Ltd vs Meghna Group of Industries Limited and others (64 DLR (2012) p. 550)
[7] STX Corporation Ltd vs Meghna Group of Industries Limited and others (64 DLR (2012) p. 550)
[8] (2008) 4 SCC 190
[9] Bharat Aluminium Company Ltd. v. Kaiser Aluminium Technical Services, Inc., (2012) 9 SCC, Videocon Industries Ltd. v. Union of India & Anr., (2011) 6 SCC 161, Dozco India Private Limited v. Doosan Infracore Company Limited, (2011) 6 SCC 179, Yograj Infrastructure Limited v. Ssang Yong Engineering and Construction Company Limited
[10] Unicol Bangladesh v Maxwell ; 56 DLR (AD) p.166
